Next Generation Data's Nick Razey: Build or Buy?

BUILD OR BUY? by Nick Razey

By devstars 08 | April | 2013

A while ago we were contacted by the CIO of a company that needed 25 racks with the possibility to expand to 80 racks. He mentioned in passing that he was also considering building his own DC as part of his company’s new office fit-out. “We’re not experts in building Data Centres but it would be much cheaper than buying from you” he added.
In the end we were successful in winning his business but it got me thinking about why he was so sure that building would be cheaper.

A very broadbrush analysis would appear to confirm his view. Assume a build cost of £2.5m, depreciate it over 10 years and you get a cost of £250K pa or a cost per rack of £3,125 per year. Wow that is cheap!

But is that the full story? Of course there is the cost of capital – say an average of £100K pa. Equipment maintenance, perhaps another £50K pa. And of course rent & rates – say £90K pa. Staffing? Even assuming a bare minimum you will need £150K for salaries including all uplifts. So now the total is £640K pa or £8,000 per rack. Not such a good price after all.

But that is the least of his problems. Remember he only wanted 25 racks initially. Those 25 racks work out at an average of £25,600 pa each. Still his IT requirements are growing so within a couple of years the Data Centre will be full and his average price per rack will be back down at the lower level. But what if he keeps growing? What if he needs 85 racks? Where do the extra 5 racks go? Does he build another 80 rack Data Hall for a further £2.5m?

The foregoing analysis also assumes that he has an available site which is suitable (secure, safe from flooding and flightpaths etc), planning permission, a source of power, connectivity options, a quality Design and Build contractor, plenty of cash to invest. He will also need plenty of time – an own build will take at least 12 months from drawing board to ready for service.

This is an extreme case but even for larger builds a similar analysis applies. The own-build option looks cheaper only if the cost of real estate and staff are ignored and full occupancy is assumed. Fortunately for us it seems that most CIOs now agree.